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Planning Problems in the Limited Liability Company

Limited liability company statutes raise jurisprudential problems regarding the allocation of rights and duties when the parties fail to take advantage of the planning opportunities available under the modern corporation statutes. This article considers the position of parties to these ventures who have agreed to a given power structure that, with the passage of time, becomes unsatisfactory to them. It discusses the development of the limited liability company form and its roots in the liberalized provisions of modern corporation and partnership law; examines a variety of fact situations derived from partnership and close corporation case law as examples of the kinds of disputes that arise among the participants in closely held enterprises; and focuses on planning issues facing closely held enterprises under limited liability company statutes, including the mode of operation and internal division of authority, potential liability to third parties, the rights of new entrants to the business, withdrawal rights of participants, and members' fiduciary duties. Within the context of each situation, it considers various possibilities or degrees of planning that the parties have undertaken and asks how particular disputes will get resolved under the limited liability company statutes.

It is a mistake for parties to rely solely on the controlling limited liability company statute. Such reliance can result in unpleasant surprises for which the parties would not have bargained had they considered the possibility of such occurrences at the time of formation, and thus the participation of a skilled attorney at the formation stage is as important in the limited liability company context as in the close corporation context.